Bank Central

January 25th, 2013

What does that make the Chile Central Bank to stimulate the economy? 20 April 2009 families and Chilean entrepreneurs, are a little taken aback: the Central Bank cuts its interest rate strong, Chilean banking system shows strong and profitable, but they have greater difficulty accessing financing. What is happening? Within the efforts being done by the Chilean Government to lift the economy in the current situation of depression, the Central Bank of Chile has undertaken strong cuts in its interest rate of reference with the aim of increasing the liquidity of the financial system to generate credit that stimulate domestic demand. Currently, the reference interest rate is located at 1.75% (since December 2008, it was reduced by 650 basis points). For a little understanding the operation of monetary policy in Chile, there is to say that the Central Bank seeks to drive the inflation rate and economic growth through the management of interest rate of monetary policy, which affects both through several factors (transmission channels). Currently, the decision to cut the interest rate when the economy is weakened seeks to achieve the following: that the lowering of the cost of the money increase credit in the economy, improve the corporate balance sheets (because it produces an increase in the real value of the assets) and improve exchange-rate competitiveness (since a lower interest rate weakens to the nominal exchange rate). The generalization of the global crisis makes the impact of the Chilean monetary policy on external demand imperceptible. On the other hand, despite being cheaper the cost of funding, according to the quarterly survey, which carries out the Central Bank of Chile, this not translates into an increase in the credit dynamics in the expected way. In relation to the above, the survey released by the Central Bank of Chile, shows that banks have reduced the amounts and deadlines in the granting of loans at the time that several entities have increased the requirements for the granting of credits (although the proportion of entities that have increased their requirements for credit granting is lower than those observed in the last quarter of 2008).

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